News 4’s Parul Joshi talked with a man who said he ran the scheme himself from 1991 to 2001 while serving time in South Carolina prisons.

Dwayne Selvey was serving time for burglary, larceny and arson at Evans Correctional Institution when he saw an on television about taxes in 1991.

“I felt that I needed money because people would walk around eating sandwiches and drinking drinks and doing stuff and I always wanted to do the same thing that they was doing but I didn’t have the money,” Selvey said.

The former inmate said he started filling out 1040 EZ forms available inside the prison, for himself and other inmates, charging them $1,000 to file their fraudulent taxes. The fee would come out of their fraudulent refunds.

“I would take a blank W2 form and I would type a person's name on it, an inmate's name, Social Security number and put him working at the BMW plant in Greer. I may have them working at JCPenney’s,” Selvey said.

Selvey said it wasn’t hard to find company ID numbers, often asking other inmates who would ask their contacts on the outside.

“I would go out and talk to other guys, other inmates and they might have another girlfriend that’s working at BMW and we could get her ID number -- company ID number,” he said.

The money started rolling in and Selvey started spending it, admitting he spent the money on items he had access to while behind bars.

“I felt that I was rich so I started doing more drugs, drinking, taking Xanax, taking pills, smoking marijuana,” Selvey said.

Selvey said his operation would eventually net about $3.5 million dollars, and that the refund checks would come to the prisons most of the time.

“Once this scam got to going on I had all kinds of stuff. I had probably $5,000 worth of commissary stuff -- drinks, food, oysters, pink salmon -- in my cell,” he said.

If the checks didn’t come to the prisons, according to Selvey, they’d go to direct deposit or relatives and girlfriends would receive them.

When asked about correctional officers opening up his mail, Selvey replied: “Yeah, they open it up, so they knew it was tax checks coming, they never asked. What are they to ask? I mean you have a lot of people that gets locked up that’s been out here working, so they are able to file taxes anyway."

In 2002, he got caught and pleaded guilty to the crimes. Selvey was sentenced to 60 months in federal prison for tax fraud.

“A lot of people I wasn’t able to file taxes for, so they got jealous. And when they would get caught for smoking marijuana or something, then they started telling on me,” Selvey said.

In 2005, Selvey testified before Congress, appearing before the Ways and Means Oversight Committee, explaining how he ripped off the government for a decade. He testified as John Doe. Back then he spoke to Stephen Stock of WESH-TV about the scheme.

“It’s about the easiest thing in the world that you could probably do,” Selvey told Stock in the interview in which he did not reveal his face.

These days he’s looking for a job, determined, he says, to live life honestly.

“Now, once I see the whole picture, I feel bad about it, that I should not have done it,” Selvey said.

But, Selvey is far from the only inmate committing tax fraud. In January, the Treasury Inspector General for Tax Administration said in 2010 the IRS identified 91, 434 fraudulent tax returns filed by prisoners.

Joshi asked TIGTA officials for state data on prisoner tax fraud, but they said they didn't have any available.

But, according to the American Correctional Association web site, South Carolina ranked seventh highest in the country.

Joshi took the issue to the South Carolina Department of Corrections.

“The tax fraud probably is not one of our highest priorities at this time,” Communications Director Clark Newsom said.

Newsom said they work with IRS to prevent it and referred to a contraband tax form policy implemented in 2003. But, Newsom admits they have to deal with other contraband issues of marijuana, cell phones and weapons, too.

“Any inmate found with tax forms unauthorized to have them it is a contraband item,” Newsom said.

But Selvey thinks preventing tax fraud should be a top national priority.

“They’re talking about taking people's Social Security checks and this and that. They shouldn't do that. What they should do is focus on the fraudulent taxes where they could save some money.”

Selvey said he’s willing to work with the IRS to show them how to prevent tax fraud.

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